UNEMPLOYMENT, TARP, AND THE SUBPRIME MORTGAGE CRISIS

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Abstract

Following the fall of the Lehman Brothers in 2008, the U.S. saw the worst recession since
the Great Depression in the 1920's. This dissertation presents a summary of two previous
major U.S. recessions, the Great Depression and the Savings and Loans Crisis, and an
analysis of the root causes and consequences of the 2007-2009 recession is also provided,
namely the bursting of the housing bubble, loose monetary policy, lax financial
regulation, and misperception of risk. The Troubled Asset Relief Program, a bailout
program implemented following the Emergency Economic Stabilization Act in October
2008, is then discussed. Using county-level panel data, the effect of the implementation
of TARP on unemployment patterns is then studied. The results show that TARP
negatively affected unemployment patterns, so that TARP alleviated the sharp rise in
unemployment after its inception